Half a million to fall behind on their mortgages in 2009

Published on Thursday 18 December 2008 21:10

THE economic downturn will lead to a huge rise in mortgage arrears in 2009, lenders have warned.

The Council of Mortgage Lenders (CML) said the number of households more than three months behind with their repayments would reach 500,000 – more than double this year's expected figure of 210,000.

The CML said 2009 would be "very tough" because the recession would drive up unemployment and lead to 75,000 home repossessions. "The economic recession means unemployment is rising sharply, and this will inevitably impact on the number of households facing mortgage arrears," it said.

While the government's "mortgage holiday" plan aims to keep more families in their homes, mortgage experts said details were still too patchy and the plan could actually encourage people to build up even more debt by deferring payments.

Lending is also expected to dry up, with repayments outstripping new borrowing for the first time since records began in 1964. This lack of demand will further drive down prices, which are expected to fall on average a further 15 per cent in 2009.

The mortgage drought will also contribute to a further drop in the number of homes changing hands, with only 700,000 transactions taking place during the year, down from 1.63 million in 2007.

Net lending – the amount of new borrowing minus repayments and people re- mortgaging – is likely to fall to minus 25 billion next year. The forecast is well down on net lending of about 40 billion this year and 108 billion in 2007.

Economists described the prediction as dire, and warned that it suggested the housing market would take longer to recover, and the recession would be longer and deeper than previously thought.

David Page, of Investec Securities, said: "If net lending does prove to be as low as that, we really would be looking at a severe downturn. The pace of house price declines this year could also be repeated."

The CML warned that despite the work the government and industry were doing, 2009 was going to be a "very tough year" for the mortgage market.

Margaret Beckett, the Housing Minister, said the government was to determined to do everything possible to provide help to homeowners "and that means doing all we can to ensure repossession is always a last resort".

But Grant Shapps, the shadow housing minister, said Labour failed to prepare the country for the downturn. "The true cost of Labour's recession looks set to hit home in 2009. It shows up Gordon Brown's refusal to face the facts when he boasted a few months ago that repossessions would not reach these levels."

Sarah Teather, the Liberal Democrat housing spokeswoman, said: "This confirms our worst fears. So far the government has only taken action to help a few people. With tens of thousands of families set to lose their homes, ministers must act urgently to protect them."

Uswitch, the price comparison website, has also released research showing that two million people are considering deferring their mortgage payments because they fear they will lose their jobs. Experts warn that delaying payments should only be a last resort as it only increases the amount of debt to be paid later.